Company Share Option Plans (CSOPs)

A company share option plan is a good way to reward key employees. There is no need to make these scheme available to all employees, so they are very flexible.

There are various conditions to meet in order to qualify as a CSOP, but the  key point to recognise is that these scheme can effectively turn ‘income’ into ‘capital ‘, and whilst income can be taxed at rates of up to 60%, the maximum rate on capital is 28% and can be very much lower.

For example, you have an employee who earns a basic salary of £100,000 per annum. He/she also earns an average  bonus of c. £5k p.a, based on performance, and will be subject to tax at an effective rate of 60% on that bonus.

If the same level of bonus accrued as an increase in the value of CSOP shares, rather than as wages that are subject to PAYE,  it could escape tax altogether. Your key employee would then receive £5k rather than £2k, which is likely to help you retain their services.

Given the tax benefits it is perhaps unsurprising to learn that there are detailed conditions that must be met to qualify; 2 of which are:

  • Individuals with more than a 30% interest in the company do not qualify
  • The maximum value of options (at the time of grant) that can be granted to any one employee is £30,000


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